Over 2000 hectares of homes and farming land have been covered since the Banjar Panji-1 exploration well near the city of Surabaya, operated by Lapindo Brantas, began spewing hot, toxic mud on May 29.

It is believed the leak began when a decision not to insert a required collar in a shaft as it was being drilled apparently caused a shaft collapse, freeing the high-pressure heated mud.

The mud is estimated to be flowing around 50,000 cubic metres a day.

More than three months later, the Indonesian Government has announced plans to channel the mud into the nearby Porong River in a bid to prevent further villages being devastated, a Bloomberg report said.

Previous efforts to contain the environmental disaster have failed.

Bloomberg reported that one of the main dams built to contain the flow broke yesterday after two other segments ruptured on September 15, causing mud to overflow into two more villages.

The Government said it is now preparing pipes and pumps to channel the mud into the man-made Porong waterway.

The dammed ponds, covering four completely submerged villages over an area of 79.5ha, are filled to 90% capacity, it said.

Rising mud levels are also reported to have delayed the drilling of three relief wells by about a month and a half.

The first relief well, which will attempt to reach the source of the blow-out at a depth of about 930 feet, will be drilled in two weeks.

Two previous attempts to re-enter the well with other equipment failed.

Lapindo Brantas has spent over $A92 million on managing the disaster so far.

Media reports have suggested the clean-up could cost more than $300 million.

Australian oil and gas company Santos, which holds an 18% stake in the well, has previously said it has made a provision of $24.3 million in its accounts for the control and clean-up operation.